As a way to measure and compare the results across regions and cities in China, we have created an index to formulate an overall average sentiment score from the last two forward looking questions. Points are assigned to each corresponding response and compounded accordingly. The index utilizes a scale of negative 150 to positive 150 in which a score of negative 150 denotes a sentiment of absolute pessimism; a zero score indicates unchanged expectations from the previous year whereas a positive 150 signifies a very optimistic outlook. The sentiment index or scores then allow trends to be observed over time.
Coming to the second half of 2015, the sentiments of hoteliers across most regions and certain key cities in China have become negative. The continued impact caused by the government’s belt-tightening police is still affecting the market, with more respondents posting weaker expectation compared to six months before. Following the similar pattern of the global hotel market sentiment (positive 7), general sentiment of the China Hotel Industry registered a national average at positive 1.
Comparing across regions, East China registers the highest sentiment score of positive 7, whereas Northeast and Southwest China record the biggest shift in sentiment, with both regions previously among the most positive in mid-2015. Market sentiment in Northeast China records the lowest at negative 19, representing a steep decrease curve.
Among the key cities across China, Shanghai recorded the highest scores at positive 38, while Guangzhou registers the most pessimistic sentiment of negative 45.
FIRST MARKET PERFORMANCE
Question 1: Was the first half 2015 market performance better or worse than you expected at the start of the year?
In response to expectations on market-wide occupancy performance, more than 46 percent of the hoteliers replied that occupancy in the first half of 2015 was better or much better than expected; close to 26 percent felt that performance was in line with expectations; while about 24 percent and only 4 percent felt that occupancy performance was worse and much worse respectively.
Average Room Rate
Following the similar pattern, the ARR fared worse than the other two performance gauges, with the main difference being more hoteliers with a negative assessment, at around 49 percent, indicating that ARR had performed worse or much worse than expected. About 27 percent of respondents voiced that ARR performance had followed their expectations. For the 24 percent of hoteliers holding positive assessment, only 3 percent responded that ARR in the first half of 2015 was much better than expected.
The sentiment for total revenue presented a more negative trend than occupancy indicator; with almost 40 percent of respondents replying total revenue was worse or much worse than their expectations. Close to 41 percent of hoteliers expressed positive assessment, indicating that total revenue performed better or much better than expected. Theremaining 19 percent of participants stated that the total revenue performance in the first half of 2015 was consistent with their expectations at the beginning of the year.
The index was used to gauge the average responses of respondents with regards to their actual first half performance compared to their expectation at the beginning of the year. While half of the regions yielded negative results, Northeast China, East China and Mid-South China expressed their optimistic yet neutral opinions, recording the sentiment scores of positive 2, 3 and 7 respectively.
Amongst the top ten provinces and municipalities with the most respondents, Shanghai (43), Guangdong (10), Zhejiang (10) and Hainan (6) were the four with positive sentiment on average, signalling a better performance for the first half of 2015 than expected. Chongqing (-37) and Anhui (-34) registered the lowest scores, while Jiangsu recorded the same sentiment as the national average, at negative 1.
Comparing the key cities across China, Shanghai (43), Shenzhen (36) and Hangzhou (27) were the top three in the category, while Hefei (-50) round the bottom.
Hoteliers of 5-star properties recorded neutral opinion at an average score of zero, higher than both 4-star and 3-star and below markets, which were at negative 5 and negative 6 respectively.
THE IMPACT OF FINANCIAL CRISIS
Question 2: Have continued global economic uncertainties impacted hotel demand as much as you had expected?
When asked if the continued global economic uncertainties had impacted hotel demand as much as they had expected, almost 47 percent of responding hoteliers indicated that the impact of the global economic uncertainties was in line with their expectations. Less than 20 percent of hoteliers responded that demand was still affected more or much more than they previously predicted, while over 33 percent of respondents felt that global economic uncertainties had impacted hotel demand performance less or much less than expected.
All regions across China had registered positive assessment in response to the continued global economic uncertainties’ impact of hotel demand. North China and East China recorded the lowest scores at positive 6 and 7 respectively. Compared to other factors, such as central government policy and new competitive supply additions, the impact of global financial crisis on hotel demand has become less and less.
Cities in which hoteliers felt that global economic crisis continues to have a direct impact on hotel markets are Huizhou (-13), Chengdu (-12) and Shanghai (-2); whereas Guangzhou (54), Suzhou (38), Sanya (36), and Chongqing (30) registered the most positive assessment.
On average, all star-rated hotel markets felt the global financial crisis had affected them less than expected, with the 3-star and below market registering a score of positive 16, followed by the 5-star and 4-star markets at positive 12 and 8 respectively.
SECOND HALF OF MARKET OUTLOOK
Question 3: What are your expectations for the second half 2015 market performance compared to the second half of 2014?
Almost 44 percent of hoteliers across China expect that occupancy performance in the second half of 2015 will be better or much better in comparison to occupancy performance in the second half of 2014; more than 31 percent believe that performance will be in line with that recorded in the same period of last year; while close to 23 percent and only 2 percent feel that occupancy performance will be worse and much worse respectively.
Average Room Rate
Following the similar trend of the corresponding outlook in August 2014, respondents register a negative outlook for ARR performance in the second half of 2015. 43 percent of hoteliers expect that ARR will perform worse or much worse than expected. About 34 percent of respondents indicate that ARR performance will be the same. For the remaining 23 percent of participants holding positive assessment, only 1 percent believes that ARR performance will experience strong improvement for the second half of 2015 when compared to the same period of 2014.
Over 37 percent of respondents indicate that total revenue in the second half of 2015 will be worse or much worse than the same period of last year. Almost 39 percent of hoteliers expect that total revenue to experience, at least, some increase; while the remaining 24 percent state that the second half total revenue performance will be consistent with the same period over last year.
The index was used to gauge the average responses of respondents with regards to their expectation of second half performance this year compared to the corresponding outlook of the same period over last year. East China is the only region that expressed a positive outlook while all other regions hold negative to neutral expectations, especially for Southwest and Northeast China which record sentiment scores of negative 16 and negative 23 respectively.
Amongst the top ten provinces and municipalities with the most respondents, more than half of them register positive sentiment on average. Shanghai (42) and Yunnan (23) are the top two on the list, signalling an optimistic expectation for the second half of 2015 when compared to the same period of last year. Chongqing (-37), Anhui (-25) and Sichuan (-25) record the lowest scores.
Comparing the key cities across China, Shanghai (42), Wuxi (18) and Hangzhou (11) are the top three in the category, while Guangzhou (-50), Chongqing (-45) and Hefei (-40) round the bottom three.
On average, 3-star and below hotels’ managers indicate the most pessimistic outlook for the second half 2015 when compared to the same period of 2014 with a sentiment of negative 13, while hoteliers managing 5-star properties record the highest score at zero.
HOTEL PERFORMANCE EXPECTATION
Question 4: For your hotel, what are your expectations for the second half 2015 performance compared to the second half 2014?
More than 61 percent of respondents indicate that occupancy performance at their hotels in the second half of 2015 will experience some increase compared to that in the same period of last year, within which more than 55 percent expect the increase to be within the range of 10 percent. Less than 32 percent of hoteliers feel occupancy at their hotels will decline in the second half of 2015 compared to the same period over last year.
Average Room Rate
Hoteliers hold more negative expectations for the ARR performance at their hotels for the rest of the year when compared to the same period of 2014. More than 47 percent of respondents believe that ARR will decrease in the second half of 2015, within which about 9 percent expect a decrease by over 10 percent. Close to 38 percent of hotel managers expect an increase in ARR performance, while the remaining 15 percent of responding hoteliers indicating that the ARR performance will remain the same.
The outlook for total revenue is more positive than the ARR performance expectation. More than 51 percent of hoteliers expect to see improved total revenue in the rest of the year, within which 20 percent believing an increase over 5 percent. About 39 percent of respondents expect a decrease in total revenue in the second half of 2015 when compared to the second half of 2014. The remaining 10 percent of hotel managers believe that total revenue will be in line with the same period over last year.
Half of regions register positive average sentiment scores for the hotel performance in the second half of 2015 when compared to the second half of 2014; while Northeast China remains the most pessimistic. Recording an average sentiment of negative 16, at least 50 percent of Northeast respondents indicating that they believe their hotels performance in all three measures will experience some decreases for the rest of the year.
Amongst the top ten provinces and municipalities with the most respondents, Chongqing (-22), Anhui (-15) and Sichuan (-15) are the bottom three on the list, showing the reduced confidence for their second half hotel performance. Shanghai (34), Yunnan (15) and Jiangsu (11) record the highest scores.
Of the key cities, Guangzhou (-39), Hefei (-32), Xiamen (-29), and Chongqing (-22) are the bottom four on the list. Shanghai (34), Wuxi (10), Hangzhou and Shenzhen (both at 15) are the top four cities showing the most optimistic performance outlook on average.
Respondents managing 5-star hotels record the highest average sentiment score at positive 6, indicating a positive expectation for their hotel performance for the second half of 2015 when compared to the corresponding period of last year.
Overall, China recorded a moderate sentiment score of positive 1 in the second half of 2015. On average, East China (7) and Mid-South China (3) are the only two regions registering the positive sentiment score.
Performance in all three measures in the first half of 2015 almost met the hoteliers’ expectations, while operators felt most disappointed about ARR levels.
Primary cities all record greater than national average scores in terms of hotel market performance expectation for the second half of the year, expect Guangzhou, which holds the lowest score at negative 45.
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About Horwath HTL
Horwath HTL is the management consulting of Crowe Horwath International that specializes in hotel, leisure and tourism industries. Established in Asia in 1987, Horwath HTL has consulted about 4,000 hotel and tourism related projects throughout the region (including over 1,200 projects in China) for clients ranging from individually held businesses to the world’s most prominent operators, developers, lenders, investors and industrial corporations. Horwath HTL now operates offices in several key cities throughout the Asia Pacific region, including Auckland, Beijing, Hong Kong, Jakarta, Kuala Lumpur, Mumbai, Shanghai, Singapore, Sydney and Tokyo. Our offices work closely together to ensure that our clients receive a multi-skilled international perspective for their projects. Horwath HTL is also supported by the Horwath database, the largest and most complete hotel and tourism related database in the world. No other firm is better positioned to meet today’s and tomorrow’s industry challenges than Horwath HTL – Experts in the hotel, tourism and leisure industries.